It Takes Time To Catch On To Capitalism

Get Serious!

October 19, 1989|By TONY GABRIELE Columnist

The Russian is eager to strike up a conversation. "Let me buy you a glasnost of vodka," he says.

Beer is fine, thanks, I say. So, what's on your mind?

It seems the Russian has seen the handwriting on the Berlin Wall. Marxism is on the way out, evidently. You couldn't get two rubles for it at a garage sale, even if Russians had garages. He figures it is only a matter of time until capitalism moves in, and he wants to be on the cutting edge. He wants to be well-positioned, market-wise, when they open up the Moscow Mercantile Exchange.

"So please explain," he says, "what is this Wall Street and how does it work?"

I shift uncomfortably in my chair. If you're going to be extolling the virtues of capitalism, this is perhaps not the best time to be talking about Wall Street. Not after we spent Monday morning worrying that America's corporate wealth was going to be reduced to the value of a Bazooka Bubble Gum pack.

"I really don't know that much about it," I say. "All I know is the guy comes on the evening news and says `Stocks fell moderately in heavy trading,' or `Stocks rose heavily in moderate trading,' or `Moderates fell stockily in rosy trading,' or whatever, and they show an arrow going up or down. But the thing to remember is, investors don't always make money."

"Da, last Friday I saw you had a little crash. A crashnik."

You are correct, I say. Investors lost nearly 200 billion dollars.

"So where did the money go?"

Come again?

"These billions that they lost. Someone came with a big truck and took it away?"

I discover that he had been brought up to believe that Wall Street tycoons had huge, Scrooge McDuck-type money bins to keep their lucre in. Actually, that's what I had thought, too, but I don't let on.

"It doesn't work like that," I say. "These profits and losses are all on paper."

Getting a blank look, I continue: "When I say they lost money, I don't necessarily mean they lost money. They have these pieces of paper, and they all agreed that the pieces of paper weren't worth as much as they were the day before."

The Russian looks more puzzled than ever. "Why don't they all agree the paper is worth more?"

"Because, uh, because ... well, it just doesn't work that way. Look, the entire economy of the United States is tied to the fortunes of Wall Street."

Why is that, he inquires.

"When the stock market makes money, investors have more capital to build things with. There are $200,000 houses being built all over the country."

The Russian's impressed. "Americans have $200,000 to buy a house?"

"Well, not that many of us, no. To tell the truth, fewer families can afford to buy a house each year."

"So you are building houses people can't afford to buy? Why build them then? In the Soviet Union, people can't afford a house of their own, but no houses get built anyway. That at least seems more efficient."

I explain that what we do in this case is to borrow. People borrow to buy homes. Businesses borrow to buy other businesses. The government borrows to stay in business.

"So borrowing is how it works," he smiles. "Borrowing is good for the economy."

"Well, actually no, too much debt is bad for the economy, only - look, do you want to get into capitalism or don't you?"

The Russian ponders for a moment. "I think," he says, "maybe we try garage sales first."